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Asia Pacific Shares Finish Week Lower but US Rate Cut Talk Provides Support

On July 10, Federal Reserve Chairman Jerome Powell helped turn the global equity markets higher after he signaled a rate cut by the Fed at the end of July. He cited slowing business investments across the U.S. due to lingering uncertainties over the economic outlook as key reasons for his dovish tone.

Asia Pacific markets finished lower last week with most of the selling pressure coming in the first two days. Late in the week, the markets mounted a rally that recovered most of those earlier losses. The catalyst behind the early pressure was follow-through selling related to the stronger-than-expected U.S. non-farm payrolls data that was released on Friday, July 5.

For the week, Japan’s Nikkei 225 Index settled at 28471.62, down 303.21 or -1.05%. Hong Kong’s Hang Seng Index finished at 21685.90, down 60.48 or -0.28% and South Korea’s KOSPI Index closed at 2086.66, down 23.93 or -1.13%.

China’s Shanghai Index settled at 2930.55, down 80.51 or -2.75% and Australia’s ASX/200 Index finished at 6696.50, down 54.80 or -0.82%.

Early Pressure from US. Jobs Report

In the U.S, the June jobs report showed the economy added 224,000 jobs in June, well above the forecast number of 165,000 jobs by economist. This helped the jobs market alleviate some of the negativity from the dismal jobs print of 75,000 in May.

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The solid jobs data also dampened Fed rate cut expectations and severely hurt the argument for a 50 basis point rate cut by the end of the month. Asia Pacific stocks fell as the debate switched from a 25bps or 50bps rate cut to a 25bps or none.

Shares Start Mid-Week Recovery after Dovish Signal from Fed Chair Powell

On July 10, Federal Reserve Chairman Jerome Powell helped turn the global equity markets higher after he signaled a rate cut by the Fed at the end of July. He cited slowing business investments across the U.S. due to lingering uncertainties over the economic outlook as key reasons for his dovish tone.

“Inflation has been running below the Federal Open Market Committee’s (FOMC) symmetric 2 percent objective, and crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook,” Powell said in his testimony, reiterating the central bank will “act as appropriate” to sustain the current economic expansion.

Hong Kong

Hong Kong’s Hang Seng Index was the biggest loser last week with most of the selling pressure taking place on Monday and Tuesday following huge demonstrations in the city. Protesters were attempting to take their cause to visitors from mainland China. For nearly three weeks now, political tensions in Hong Kong have risen amid protests over an extradition bill that would have allowed some arrested in the city to be sent for trial in mainland China.

On July 9, after bowing to public pressure after weeks of protests, Hong Kong’s leader Carrie Lam said the extradition bill that kicked off the spiraling protests and political crisis “is dead”. However, the protests are expected to continue because Lam has not formally withdrawn the legislation.

This is a key issue for global investors because it threatens Hong Kong’s ability to function as a major international business center.

Japan-South Korea

Tensions between Japan and South Korea escalated last week as the two countries remained locked in a dispute over forced wartime labor, with Japan imposing tighter restrictions last week on the export of high-tech materials used in smartphone displays and chips to South Korea. Shares of industry heavyweight Samsung Electronics fell on the news. Analysts say the conflict could morph into a full-blown trade war that could last for several months.

China

In China, the Shanghai Composite and the Shenzhen Composite finished on a high note after the economic powerhouse reported that dollar-denominated exports fell 1.3% in June from a year ago while imports fell 7.3% in the same period. Investors had expected China’s exports to have declined 2% from a year ago, while imports were expected to have contracted 4.5% from a year earlier.

This article was originally posted on FX Empire

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